Plastiques du Val de Loire (EPA:PVL) Will Be Looking To Turn Around Its Returns

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Plastiques du Val de Loire (EPA:PVL), we weren't too hopeful.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Plastiques du Val de Loire, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.033 = €15m ÷ (€821m - €351m) (Based on the trailing twelve months to March 2024).

Thus, Plastiques du Val de Loire has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.8%.

See our latest analysis for Plastiques du Val de Loire

In the above chart we have measured Plastiques du Val de Loire's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Plastiques du Val de Loire .

The Trend Of ROCE

In terms of Plastiques du Val de Loire's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 8.3% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Plastiques du Val de Loire becoming one if things continue as they have.

On a separate but related note, it's important to know that Plastiques du Val de Loire has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Plastiques du Val de Loire's ROCE

In summary, it's unfortunate that Plastiques du Val de Loire is generating lower returns from the same amount of capital. This could explain why the stock has sunk a total of 80% in the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Plastiques du Val de Loire does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Plastiques du Val de Loire isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.